Qualcomm's earnings cheer gloomy investors

Smartphone saturation fears don't materialize for wireless chip maker

Qualcomm posted better than expected earnings Wednesday for its fiscal first quarter, in part because it shipped more wireless chips and netted a gain on the sale of its Omnitracs fleet tracking business.

The company’s outlook for the upcoming quarter, however, was weaker than analysts predicted.

Still, the results, released after markets closed, were welcome news to unsettled investors — who feared worse news from the company based on numbers posted recently by Samsung and Apple, two large Qualcomm customers.

The San Diego wireless giant’s shares rose in early after-hours trading after declining for the previous few days.

For the quarter ended Dec. 31, Qualcomm said revenue increased 10 percent over the same quarter last year to $6.62 billion. Analysts had forecast revenue of $6.67 billion.

Qualcomm said it earned $1.88 billion, or $1.09 a share, roughly the same as last year. Excluding stock compensation and certain other charges, its adjusted net income came in at $2.16 billion, or $1.26 a share, flat with the same quarter last year. Analysts had forecast adjusted earnings of $1.18 per share.

Looking ahead, Qualcomm forecast adjusted earnings for the current March quarter of $1.15 to $1.25 a share on revenue of $6.1 billion to $6.7 billion.

Analysts had been expecting earnings of $1.26 per share for the March quarter on sales of $6.72 billion.

“They said the first quarter was a little bit stronger than they thought and the second quarter is a little bit weaker,” said Stacy Rasgon, an analyst with Bernstein Research. “In terms of the guidance, it could have been worse. What it means is the back half recovery takes on more importance now.”

Late last year, Qualcomm said it expected a slower start to fiscal 2014, partly because of the timing of product launches and the expected rollout of new 4G LTE networks in China.

Qualcomm is the leader worldwide in 4G LTE technology, so the arrival of LTE in China is a huge opportunity the company.

Investors were spooked, however, by fears that the smartphone market was maturing in developed countries such as the United States. This week, Apple reported that it sold fewer iPhones than expected. And Samsung’s profits declined in its mobile arm because of an increase in marketing expenses to promote new products amid tough competition.

Qualcomm’s results helped ease some of those fears. Qualcomm slightly raised its full-year forecast for earnings per share to a range of $5 to $5.20, from $4.95 to $5.15. And the company reaffirmed its full-year revenue forecast of $26 billion to $27.5 billion.

“We are off to a solid start to fiscal 2014,” said incoming Chief Executive Steve Mollenkopf. “As you know, there is always some seasonality this (the March) quarter. I don’t think you are seeking more than that.”

Qualcomm’s shares gained $1.63 to $72.75 in early after-hours trading.

In the December quarter, Qualcomm booked a $665 million gain from the sale of its Omnitracs business to Vista Equity Partners late last year. It also took one-time charges of $444 million related to its Mirasol display factory, as well as other writedowns, which offset some of the Omnitracs gain.

Meanwhile, the company sold more wireless chips than it forecast, shipping 213 million radios in the quarter. That’s up 17 percent over the prior year and above its midpoint guidance of 202.5 million radios.

Qualcomm also improved profit margins in its chip business through lowering costs. And the company also bought back $1.6 billion in shares.

“I think what is going on is they are protecting some of their earnings through share repurchases and operating expense control,” said Mark McKechnie, an analyst with Evercore Partners. “Really the December quarter beat, a lot of that was their operating expense came in below what they were talking about.”